I keep losing money in the stock market.
This is a sentence that has been repeated on forums, social network pages and groups, private chats, articles, and pretty much any other place you can think of. But why is this happening? Why do investors continuously lose money in the stock market, even though a lot of companies see an increase in share price over time?
The stock market dilemma
Since the internet went mainstream, pretty much everything in the world became available to us. From exploring far corners of the world on Google Maps to having food delivered on your doorstep simply by pressing a few buttons, everything is possible.
Of course, it wasn't long before the stock market joined the trend and moved online. This was a revolutionary moment in its history, as it suddenly became available to everyone. It was no longer only limited to professionals with deep pockets, but to you and me as well.
A lot more money is now flowing through the stock market than ever before in history. But, with all that said, many newcomers to the 'land of investments' continue to lose money 90% of the time. Many have started wondering what the reason behind it may be, and that is what I will explain to you today.
Why do you lose money?
When it comes to investing in various assets, be they stocks, ETFs, or even cryptocurrencies — one thing that you must realize is that there is always a certain amount of risk. Some assets are riskier than others, but they are all alive, with their prices constantly moving up and down, like a heart rate of a company that they belong to.
Their movement can be affected by a number of things, from the news regarding a specific company to the overall trend that dominates the market. These trends come and go, and experienced investors are used to recognizing them, with many even having enough experience to know when to expect them.
That leads us to our first point, which is:
1. Learn to understand the market
This is easy to say, but not that easy to do. Understanding the market requires time, dedication, as well as willingness to experience losses, at least at first. The market is not only alive but also deep, complex, and very interconnected.
Think of it as a web, where no single entity exists by itself. Companies are all connected through collaborations and partnerships, they supply each other, they invest in one another, and they often react to the changes in stock prices of other firms.
Then, there is the market sentiment, which decides how investors are going to behave. Knowing which time of the year is the best for investing in certain companies, and when to buy or sell is crucial for exploiting those slight changes that might end up making you money.
2. When is the best time to invest?
Most stock market traders and investors would argue that there is no specific time when you should invest and that it all depends on the situation. While this is mostly true, there are still some specific times when making your move might have a better chance of succeeding.
For example, as you may know, the stock market is not available around the clock. Stock exchanges have their working hours, opening in the mornings, and closing in the evenings, or rather, late afternoons. Many believe that these are the best periods for investing, right after the opening, and immediately before closing, as that is when you can 'catch' the best deals.
However, this should not be considered a general rule, and doing your research is always the best way to go, which leads us to our next point:
3. Do your research
Doing the research is bothersome; it takes a lot of time and a lot of effort, as you must dig through reports, statistics, charts, predictions, and more.
However, not doing it is a recipe for disaster, and you will 100% lose your investment if you don't know what you are doing. You might end up catching a lucky break once or twice, but you should always assume that doing things blindly will end up in a loss of your hard-earned money.
Research is crucial for recognizing good investments, but also for recognizing when to make an investment. Do not simply follow the trends, as following a trend usually means that you are already late to the party and that the hype is either near its peak or that it is already there. Instead, read up on the firms, follow charts, and learn how to use other investment tools that can provide good insight into how the company is doing and where it might be heading next.
This is also closely tied to making investments based on pure sentiment, which is also a big mistake more often than not. Investment is a science, and basing your decisions on emotions is another way to lose your funds. Your decisions must be calculated and level-headed.
Not giving in when the hype starts can be difficult, as it seems that everyone else is making money. However, as mentioned, investing in something that has become a trend likely means that you are simply too late.
4. Work smart, not hard
A lot of new investors make a mistake of trying to find a shortcut and get rich quick. This leads to all kinds of wrong moves, such as not diversifying their investments, investing more than they can afford to lose, and, as mentioned — jumping on the hype train.
All of these things are the wrong way to go about investing. Yes, you should definitely diversify, but not too much. Spreading your investments too thin will yield small returns, and by the time you decide to invest more, the hype will be gone.
At the same time, investing more than you can afford to lose is also a bad thing, as you will be left with nothing by the time you realize what is going on. Only invest the money you can live without, which might also be difficult if you are sure in your decision, but it is well worth it if it turns out that you're wrong.
Finally, be patient. The best investments are early ones, and you might end up having to wait for days, weeks, months, or even longer. However, if you simply follow trends — well, I already explained what happens.
5. Learn from your mistakes
Nobody knows everything, and everyone has to start somewhere. That means that you will make mistakes along the way, and you will experience losses. And that is fine, as long as you don't invest more than you can afford to lose, and you learn from your mistakes.
Keep track of your investment decisions, and whether you win or lose, always wonder what happened, and how did you get there. This is a method that will help you uncover hidden patterns, as well as which types of behaviour work and which ones do not.
Do not be afraid to fail, as it happens even to the best of investors. The stock market is unpredictable, and no one is 100% in sync with it. However, as you progress with your investments, you will start feeling its movements on a deeper level.
Until then, you might even want to consider finding a mentor who would help you navigate these complex waters, at least until you are comfortable enough to start finding your own way around.
Remember that investing is a business and that it doesn't care what happens to anyone involved. That means that you must always be vigilant, and always have a plan.
Don't just assume that things will work out in the end, as that has been the downfall of many investors. Don't give up when you lose, but learn from your experiences, choose good companies to invest in, and don't allow yourself to be tricked by opportunities to earn large amounts quickly. Keep in mind all that I have talked about, and your chances of making well-informed, successful investments will be significantly increased.